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3 January 2011

Who Contributes More To Horse Racing? The Horseplayer Or The Owner?

It is maddening when I read a comment by horse owners that reads something like this: "we invest a lot more than Horseplayers!" or "we should have the biggest say because we put on the show!" Both of these statements are untrue, and here is why:

Tackling the second statement. No, the track puts on the show, and the show is gambling. The proceeds from gambling losses by customers make the race track and the purses it gives out tick.

WHO CONTRIBUTES MORE MONEY?
It is estimated that thoroughbred horse owners collectively lose 40% of what they put in ( for some jurisdictions that have slots, this amount may be lower, while owners in jurisdictions that don't have subsidized purse money added to purses may lose more).

In 2009 $1.1 Billion was distributed in purse money. After owners give 10% to trainers and pay the jockeys their share, that leaves around $900 million that goes to the owners. 40% of that is $360 million . Sounds like a lot, but it is pale in comparison to what Horseplayers lose. EDITORS UPDATE: Turns out that the number lost by owners could be closer to $1 billion, but if you take into account that Horseplayers lose after tax dollars, and much of the lost money for horse owners is pre tax dollars, the amount that Horseplayers lose in real money is much greater than what is lost by owners collectively.

$12 Billion was bet (I'll stop short at calling this money invested, though horse owners like to use that term for the money they gamble on owning horses). The blended takeout rate is around 21%, but because of rebates the blended rate is probably closer to 18% these days. This means that over $2.1 Billion is lost each year by Horseplayers.

And if you include the lost money by gamblers at games like slots or Instant Racing, monies that are used to subsidize purses, gamblers/Horseplayers lose a lot more than $2.1 Billion each year.

I'm not even going to add the costs of Forms, data, transportation, admissions, and concessions (much of which owners can deduct, but the 99% of Horseplayers who lose money cannot).

Now, if we dissect the $360 million lost by owners further, almost all of it is lost within the industry, and a good amount of it goes to horse owners who have a horse racing related business on the side (like farms that break horses, etc.), or even a full time business (like a vet who owns horses). Some of it in the form of day pay goes to trainers, which helps subsidize the horses they own or co-own.

Another thing is that in many cases, horse owners only risk a small percentage of their whole net worth, while in many instances, Horseplayers are risking their entire net worth...in some cases, the Horseplayer doesn't have a positive net worth.

So who exactly is more important to the racing industry? Those who lose less than $360 million $1 billion a year (mostly pre-tax), or those who lose more than $2.1 Billion after tax dollars?

I don't see record low takeoutS, I see one tied record low and that is it.

However if you look at the new Pick 6 which now resembles the Beulah Fortune 6, the nature of the bet has changed, and the takeout has gone up 33%, from 15% last year to 20% this year.

Depending on how successful the Pick 5 bet is, it will be a coin toss as to whether their actual blended rate goes up slightly or down slightly or remains around the same.

Yes, the Pick 6 has a shot of bringing in the lottery/slots crowd if the jackpot grows once or twice during the meeting, but to promote Gulfstream Park as a track that has lowered its takeout is just plain deceptive and wrong.

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13 comments:

Anonymous
said...

Dear CanGamble,

Mate, you're coming at this from the wrong angle. Despite the behavior of the guys in California, racing is not a game where owners of racehorses and gamblers have opposing interests. Generally, those interests are complementary in that better purses generally equal better horses, which tends to produce more formful racing, better wagering returns, etc.

The overwhelming majority of both groups want a clean sport that can be promoted for greater public participation, while giving the participants the excitement of actually making a buck along the way.

Frank, I've co-owned over 30 horses in my life. I'm not out to bash owners here, I am trying to convey fact.I can argue as a gambler that class isn't my motivating factor in making a wager, though for many it may well be. And my goal and horse owners goals are the same. We want the game to grow.However, I know what the number factor is, and that is price of the product (takeout) which stifles growth. It is too high. Horsemen groups who have influence do not understand takeout. The industry needs to hire those who do, and look to them for guidance, not horse owner groups.

Knight Sky is exactly right. Churchill and Stronach are not about horse owners (except for Frank's own horses). And it's true that the game wouldn't exist without either the bettors OR the owners. I doubt there'd be 1$12 billion a year in handle betting on nothing.

I do question CanGamble's estimate of "only" $360 million in losses for owners. The Thoroughbred Times annual figures consistently report that owners pay about twice as much to maintain their horses as they get in purses, so that would push the operating losses to $450-500 million a year. And that's only the operating losses; it doesn't count the cost of buying horses, most of which also ends up as a loss.

We (owners) are in the game not to make money, but because we love horses and the excitement. We just want to have a modest chance of breaking even, which, I agree, would be most likely with an optimal takeout, if only we knew what that was.

Hi Steve, even if the estimate is off by a $100 million or so, still that money goes back to industry participants (many of whom own horses). In the case of the cost of buying horses, it is a zero sum game, because the money is going to a horse owner and/or breeder originally. If a horse is claimed for $16k and turns into a dud, one owner got 16k for the horse. The only thing lost by owners collectively was the expenses to keep the horse in training, and that falls under the 360 million to 500 million category.

I do think Stronach makes decisions that are owner first in nature. As for Churchill, they are CD stock first (and right now, that seems to be trying to capture a bigger piece of a shrinking pie).

Still, Churchill and Stronach have to deal with Horseman groups when it comes to pricing the product in most cases.

To get even more pragmatic,where are the voices of the fans on the Boards of key racing organizations? NTRA has begun the model by placing a fan on the the Advisory Board of the Integrity and Safety Alliance. How many tracks have invited fans to sit with full voting rights on their Boards? Thats the next frontier.

as an owner and trainer who has raced and owned horses for the last 10 years won only six races i belong in a mental institution if were not for the love of horses and the excitement of watching them run and i do bet on them.If you compare all the money i have put into them to one individual gambler i can assure you there is no comparison. where in hell does all this money bet on gambling go

Anon, Horseplayers spend all kinds of time handicapping, betting and watching mostly for the love of the gamble/skill of picking winners.Again, 2 billion after tax is lost collectively by gamblers. At least owners/trainers can claim at least some losses reducing their taxes.

The money bet on gambling (lost by gamblers) goes to purses and the tracks mostly.

Over 1 billion of it is paid out each year.

There are quite a few gamblers who bet more than $100,000 a year on track. They are contributing at least $21,000 a year by doing so. And collectively, $100,000 bettors lose an average of $21,000 each per year.

A player that bets $100.000 a year and loses $21.000 a year is breaking even except for the breakage,it's highly unlikely theses guys are not losing as well so its more like a loss of $55.000 average with out rebates, as most public handicappers work with a huge minus in R.O.I.about 40% loss on the dollar when they persaude the players to bet their pick's.

Railbird, I think you mean takeout not breakage. Rebates might up the blended takeout rate for non rebate players by a point tops.Not too many people who bet $100,000 and lose more than $25,000 stay in the game very long.